By KRISTINA PETERSON And DAMIAN PALETTA

WASHINGTON—The federal budget deficit likely will top $1 trillion for the fourth consecutive year in fiscal 2012 as the economy continues to grow at a sluggish pace, the nonpartisan Congressional Budget Office predicted Tuesday.

Congress’s official budget scorekeeper projected a sober outlook in its semi-annual report Tuesday, forecasting that the unemployment rate will remain above 8% both this year and next year and above 7% until 2015. The economy will see a “continued slow recovery” as real gross domestic product grows 2% this year, measured from the fourth quarter of the previous calendar year, and by 1.1% next year.

The federal budget deficit is expected to decrease modestly, but the CBO said its outlook hinged on policy and budget choices lawmakers face this year.

For example, the deficit will grow by $3.1 trillion over 10 years if spending cuts and tax increases are allowed to go into effect at the end of this year. If they are halted, the deficit would grow by roughly $11 trillion over the next 10 years.

The federal budget shortfall likely will clock in at $1.1 trillion in fiscal year 2012, down slightly from the $1.3 trillion deficit in the previous fiscal year, the CBO projected. Over the next few years, the expected deficits drop significantly, averaging 1.5% of GDP between 2013 and 2022, compared with the fiscal-year 2012 deficit, which is expected to be 7% of GDP.

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By JOSH BOAK

Deep skepticism about Congress passing President Barack Obama’s $447 billion jobs package and fears that Greece could slip into default sparked a severe stock market selloff on Friday.

The Dow Jones Industrial Average closed down 304 points, or 2.69 percent, a reminder of how dangerously fragile the situation is despite government initiatives worldwide to stabilize the economy and fuel growth.

“There is only so much we can withstand before we move into a recession,” said Mesirow Financial chief economist Diane Swonk.
Europe had primarily caused the downturn, Swonk said, although political gridlock and reports of a possible terror attack on the 10th anniversary of Sept. 11 on Sunday also weighed heavily on traders Friday.

German officials said Chancellor Angela Merkel’s government is putting together a strategy for supporting banks in the event Greece defaults, according to Bloomberg News. A default could ignite a further selloff that would bite into the revenues and profits of American companies with European operations, a shock that could possibly pull the stalled U.S. economy into a full-blown recession.

Tangent Capital’s James Rickards said Wall Street has already priced Washington dysfunction into the market. Still, traders found little reason for optimism in the president’s address to Congress Thursday night.

With Republicans controlling the House of Representatives, the jobs package—which may be the last chance at a fiscal stimulus for next year—will undoubtedly struggle to survive the legislative process intact.

“Why is this plan unlikely to pass?” wrote Bank of America Merrill Lynch economists Neil Dutta, Michael Hanson, Ethan Harris. “Primarily because the broad contours of the plan are similar to the 2009 stimulus plan, with more than half of the stimulus coming from spending increases. That plan passed in the context of a deep recession and with a Democratic majority in both houses of Congress – no House Republicans voted for the plan.”

The jobs package is roughly half the size of the 2009 stimulus. Analysts estimate the Obama plan, if fully enacted, could increase GDP next year by as much as 2 percent, with its combination of reduced payroll taxes, extended unemployment benefits, aid for state and local governments, and a steep ramp up in construction spending.

Obama said in his address to Congress that his plan is paid for, but he didn’t detail the specific ways he intends to meet the cost.

Those specifics will come in the weeks ahead, according to the White House.

Despite the plan’s possible economic benefits, the charged political climate has turned against the prospect of additional short-term deficit spending to pay for the jobs package.

UBS analyst Drew Matus noted that the public is wary of piling on any debt, citing a recent poll by NBC and The Wall Street Journal.
“The president’s plan faces a key challenge from the public’s continued concern over the budget deficit,” he said. “As of the end of August, 56 percent of Americans want the president and Congress to focus on the deficit while only 38 percent want them to focus on boosting the economy.”

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1. Ryan will not seek the presidency, but he will shape the debate.

Sources close to Rep. Paul Ryan of Wisconsin tell National Review Online that the Budget Committee chairman considered a variety of factors this summer as he mulled a late-entry presidential campaign. This afternoon, he closed the door on a 2012 bid, choosing to remain in the House. “I sincerely appreciate the support from those eager to chart a brighter future for the next generation,” he said in a statement. “While humbled by the encouragement, I have not changed my mind, and therefore I am not seeking our party’s nomination for president.” Here are five reasons cited by Ryan’s circle that explain his decision.

He’d rather frame the debate. Ryan’s top priority for the 2012 presidential race has always been to help Republicans topple President Obama. He has repeatedly called the 2012 contest a “realignment election” in which the fate of both parties will be shaped for a generation. After authoring the House Republicans’ budget earlier this year, which drew him into the national spotlight, he felt comfortable making the national case for conservative reform. Ryan had hoped that Indiana governor Mitch Daniels would run. But that didn’t happen, and, after he saw the tepid response to his budget from leading GOP presidential contenders, Ryan began to consider making a run of his own in order to force an “adult conversation” about the looming debt crisis.

In the end, he decided that if he could amp up his political-action committee in early primary states and make more of an effort to frame the 2012 debate inside and outside the Beltway, then he could achieve many of his most important objectives without having to launch a full-scale presidential campaign. Look for him to take a higher profile in coming weeks.

He wasn’t enthused. In one important respect, there was never much chance of a Ryan campaign, sources say, because Ryan was rarely enthusiastic about the prospect. Out of respect to his many supporters, including his longtime mentor Bill Bennett, Ryan considered the advice of political operatives, friends, and colleagues — but never let himself get carried away. As Stephen Hayes of The Weekly Standard has reported, he did take meetings with top GOP consultants, including Frank Luntz, but Ryan was more interested in getting a sense of the field and Republican thinking than in gauging his own chances. His wife, Janna, and his young children were reportedly supportive of his running for the nomination, but had reservations about his once more becoming a national target for the Left. In a phone call this afternoon, former Wisconsin governor Tommy Thompson said that he “understood [Ryan’s] reasons” for the decision. “He would have been the best candidate, by far,” Thompson said. “I encouraged him to run. He’ll be a contender for many years to come.”

He did not want to play catch up. Ryan may have tempered his presidential ambitions this afternoon, with much of the decision being based on personal and House considerations. But Ryan did take a glance at the early primary states and saw leading, big-name candidates already roosting in Granite State hamlets and outside Iowa cornfields. He does have a political-action committee, but even that has nowhere near the size or power of, say, Sen. Jim DeMint’s Senate Conservatives Fund. Ryan, if he had entered the race, would have had to start from scratch. That would mean building an organizational infrastructure and a political team while attending to a packed schedule of debates and other 2012 events. While he was getting started, his competitors would be raising funds — and probably not inclined to play softball with the upstart. Ryan is said to have been more than ready to engage certain candidates, but he was not interested in playing catch-up on the ground. His confidants know that he is at his best when he is sparring about ideas, not making cold calls to activists and bundlers.

” President Obama had a “substantial role” in negotiating the debt deal, “In the beginning, middle and end, this process moved forward because of the president’s leadership.” White House Press Secretary Jay Carney

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The most conservative Senate Republicans — along with a handful of liberal Democrats who think it went too far — voted against the debt bill.

One senator who didn’t fit that category was moderate Democrat Ben Nelson, who also voted no, but he’s up for re-election in 2012.

Here’s the full list of the 26 senators who voted against the bill:

Kelly Ayotte (R-NH)
Saxby Chambliss (R-GA)
Dan Coats (R-IN)
Tom Coburn (R-OK)
Jim DeMint (R-SC)
Kirsten Gillibrand (D-NY)
Lindsey Graham (R-SC)
Chuck Grassley (R-IA)
Tom Harkin (D-IA)
Orrin Hatch (R-UT)
Dean Heller (R-NV)
Jim Inhofe (R-OK)
Ron Johnson (R-WI)
Frank Lautenberg (D-NJ)
Mike Lee (R-UT)
Bob Menendez (D-NJ)
Jeff Merkley (D-OR)
Jerry Moran (R-KS)
Ben Nelson (D-NE)
Rand Paul (R-KY)
Marco Rubio (R-FL)
Bernie Sanders (I-VT)
Jeff Sessions (R-AL)
Richard Shelby (R-AL)
Pat Toomey (R-PA)
David Vitter (R-LA)

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